2023 (1) TMI 765 - AT - Income Tax

Tribunal orders income addition, upholds reopening validity, and affirms jurisdiction to change income head.

The Tribunal allowed the Revenue's appeal, ordering the addition of Rs.6,56,89,219 to the assessee's income. The Tribunal upheld the validity of the ... Reopening of assessment u/s 147 - undisclosed work in progress - HELD THAT:- As evident from the perusal of the case file that the assessee was found to have not disclosed “fully” and “truly” all the material facts once it is an admitted position that the work in progress had seen light of the day only as per his letter dated 04.01.2008 addressed to M/s. Samcon Infrastructure Corp. We thus reject the assessee’s instant last legal argument, not raised before the CIT(A), in the Revenue’s appeal. Addition of the assessee’s work in progress - Also no merit in the assessee’s instant arguments on merits as well. Suffice to say, it is an admitted fact that the assessee has nowhere declined the department’s clinching stand all along that he had never disclosed the work in progress at all in his books through-out. AO foregoing detailed discussion has also not invoked the so-called accrual principle which could be held to have been rightly appreciated in the CIT(A)'s impugned order. This is thus a clearcut instance wherein the impugned addition ought had been assessed as “unexplained” work in progress only. Question as to whether such a change in the head of income, if at all, could be allowed to be made in sec.254 proceedings is concerned, we find that not only the hon'ble jurisdictional high court’s landmark decision in Ahmedabad Electricity Co. Ltd. [1992 (4) TMI 29 - BOMBAY HIGH COURT] has settled the law long back that the clinching statutory expression “may pass such orders thereon as it thinks fit” has to be interpreted in wider than in narrower terms but also their lordships hold in CIT vs. Gilbert & Barker Manufacturing [1976 (12) TMI 39 - BOMBAY HIGH COURT] indeed affirm our jurisdiction to change even head of income, as the case may be, after putting the parties to notice. Assessee’s further contention that the impugned vouchers does not relate to F.Y. 2007-08 also fails to cut any ice as we can very well direct the Assessing Officer to assess the same in the concerned earlier assessment years u/s.153(6) of the Act. And also the impugned sum stood crystalised and became due on demand only in assessment year 2008-09 in issue. Faced with this situation, we restore the Assessing Officer’s action adding the impugned sum in assessee’s hands in above terms - Decided in favour of revenue. Issues:- Addition of Rs.6,56,89,219 on account of claim made to Samcon Infrastructure Corporation (SIC) by the assessee- Validity of reopening proceedings under Section 147 r.w.s. 143(3) of the Income Tax Act, 1961- Application of accrual principle in revenue recognition- Assessment of unexplained work in progress- Jurisdiction to change head of income in appellate proceedingsAnalysis:Issue 1: Addition of Rs.6,56,89,219The Revenue challenged the deletion of the addition made by the CIT(A) on the grounds that the claim made by the assessee to SIC was not recognized as income since it was contingent in nature and not approved by SIC. The CIT(A) found that the Assessing Officer had not provided sufficient reasoning to treat the claim as income. The work in progress amount was not disclosed in the books, leading to the conclusion that the addition should be treated as unexplained work in progress. The Tribunal upheld the Revenue's appeal, ordering the addition of Rs.6,56,89,219 back into the assessee's hands.Issue 2: Validity of Reopening ProceedingsThe assessee argued that the Assessing Officer did not apply independent reasoning before initiating the reopening proceedings. The Tribunal rejected this argument, stating that the assessee had not fully disclosed all material facts, particularly regarding the work in progress. The Tribunal found that the reopening proceedings were valid and that the assessee's objections did not vitiate the proceedings.Issue 3: Application of Accrual PrincipleThe CIT(A) and the Tribunal agreed that the accrual principle of revenue recognition did not apply in this case since the other party had refused to honor the commitment. The Tribunal held that the work in progress was unexplained and should be assessed as such. The Tribunal also clarified that the change in the head of income could be allowed in the proceedings under sec.254.Issue 4: Assessment of Unexplained Work in ProgressThe Tribunal determined that the unexplained work in progress should be added back to the assessee's income, as it was not disclosed in the books and was deemed to be unexplained. The Tribunal directed the Assessing Officer to assess the sum in the relevant earlier assessment years if needed.Issue 5: Jurisdiction to Change Head of IncomeThe Tribunal affirmed its jurisdiction to change the head of income, citing relevant case law. It rejected the assessee's contention that the vouchers did not relate to the relevant financial year, stating that the Assessing Officer could assess it in earlier years if necessary. The Tribunal restored the Assessing Officer's action of adding back the sum to the assessee's income.In conclusion, the Tribunal allowed the Revenue's appeal and ordered the addition of Rs.6,56,89,219 to the assessee's income in accordance with the findings on the issues discussed.